Category: insurance

Insurance companies raided by antitrust agency for alleged rate-setting collusion

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PRICE-FIXING ALLEGATIONS LEAD TO THURSDAY’S DAWN RAIDS AT MAJOR SOUTH AFRICAN INSURANCE COMPANIES

By Michael-James Currie and Joshua Eveleigh

On 25 August 2022, the South African Competition Commission (“SACC”) announced that it was conducting so-called ‘dawn raids’ as part of an ongoing investigation into the industry, initiated in 2021. The raid took place simultaneously at 8 of South Africa’s major insurance firms: Discovery Limited; Hollard Insurance Group (Pty) Ltd; Momentum, a division of MNI Limited; Old Mutual Limited; BrightRock Life Limited; FMI, a division of Bidvest Life Limited; Professional Provident Society Limited, and South African National Life Assurance Company (Pty) Ltd (together, the “Insurance Firms”).

Notably, all of the Insurance Firms operate within the long-term insurance market.

The SACC’s decision to raid the premises of the Insurance Firms comes as the result of suspicions that the they had agreed to fix prices and/or trading terms in relation to certain investment products in contravention of section 4(1)(i) of the Competition Act, 89 of 1998 (“Competition Act”). Specifically, the SACC stated that it was in possession of information implicating the Insurance Firms in a scheme to share information regarding premium rates on risk-related products and fees for other investment products.

Says John Oxenham, a lawyer with Primerio Ltd., “[a]lthough dawn raids form part of the SACC’s ordinary evidence gathering procedure and is not indicative of the guilt of the Insurance Firms, the sharing of information would enable the coordination of increased prices.” Given that the clients of the Insurance Firms include both natural and juristic persons, the effect of the alleged conduct would have far-reaching and adverse effects on consumers, particularly where those consumers are sensitive to price increases.  Continues attorney Oxenham: “In this respect, it would be unsurprising if the SACC were to continue on its path of highlighting ‘public-interest‘ objectives by pursuing the investigation against the Insurance Firms and seeking the maximum penalty in respect of a contravention of section 4(1)(b)(i) – 10% of the Firm’s annual turnover in and from South Africa, for first-time offenders.”

Mr. Oxenham’s colleague, Andreas Stargard, notes the size of the RSA insurance market, and points out that the dawn raids occurred across the entire geography of the Republic of South Africa: “South Africa alone makes up over two-thirds of all African insurance premiums continent-wide! Today, the SACC’s spokesperson Sipho Ngwema confirmed today that 5 sites were raided in Gauteng, 2 in the Western Cape, and 1 in KwaZulu-Natal. This simultaneous and unannounced action is testament to the Commission’s bench strength, no doubt assisted by local provincial law-enforcement authorities, as is usually the case across in antitrust raids across the globe, where the actual evidence-gathering procedure is not only undertaken by government competition lawyers, but rather significantly assisted by local police, sheriffs, or similar enforcement agencies”. Finally, Stargard notes, “it remains to be seen whether this raid occurred as a result purely of the agency’s prior sector investigation, or whether there was (or were) any whistleblower(s) seeking leniency for their participation in the alleged cartel conduct, thus enabling the SACC to pursue a targeted and well-founded raid.”

Interestingly, a U.S. consulting firm, McKinsey, which has been involved with several South African government agencies and quasi-governmental entities, recently published an article entitled “Africa’s insurance market is set for takeoff“, noting that the “African insurance market’s immaturity points to significant scope for growth”:

Africa’s insurance industry is valued at about $68 billion in terms of GWP and is the eighth largest in the world—although this is not equally distributed across the continent. Markets are inconsistent in terms of size, mix, growth, and degree of consolidation, with 91 percent of premiums concentrated in just ten countries. South Africa, the largest and most established insurance market, accounts for 70 percent of total premiums. Outside of South Africa, we see six primary insurance regions in Africa. In the Southern Africa region, 54 percent of premiums are for life insurance. Nonlife insurance, however, plays a larger role in anglophone West Africa, North Africa, East Africa, and even more so in francophone Africa

It remains to be seen whether the effect of today’s raids in the RSA will hinder the predicted “takeoff” of the insurance industry, or assist in its growth within permissible, lawful boundaries.

Namibian Supreme Court rules Competition Commission has no Jurisdiction Over Medical Aid Fund Members

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By AAT contributors Charl van der Merwe and Aurelie Cassagnes

On 19 July 2017, the Namibian Supreme Court, was tasked with settling a long standing dispute (not the first of its kind) as to whether or not the Respondents fell within the jurisdiction of the Namibian Competition Commission (NCC) in terms of the Namibian Competition Act of 2003 (Namibian Act). The case was brought on appeal by the Namibian Medical Aid Funds (NAMAF) and its members (collectively referred to as the Respondents).

After an investigation lasting a couple of years, the NCC announced in November 2015 that it had considered the behaviour of the Respondents in setting a “benchmark tariff” and found that the practice amounted to Price Fixing in contravention of section 23 of the Namibian Act. The Respondents, in pre-empting the commission’s planned litigation, disputed the NCC’s jurisdiction. The High Court found in favour of the NCC which led to the appeal by the Respondents to the Namibian Supreme Court.

Benchmark tariffs, in short, is a recommended fee, payable to doctors, at which medical aid expenses and consultations are covered. The issues surrounding benchmark tariffs has sparked debate across Africa with ‘those for’ arguing that without them, the medical profession would be “nothing short of economic lawlessness” whilst critics argue that it is “quietly killing off the health-care profession”.

The Namibian High Court, in finding against the Respondents, confirmed the NCC’s jurisdiction over the matter and ruled that determining and recommending a benchmark tariff for medical services was unlawful because it amounted to fixing a selling price. The court, in making its decision, held that “The funds’ activities in formulating a benchmark tariff were not ‘designed to achieve a non-commercial socioeconomic objective’. Rather, it was to produce and distribute wealth.” (Own emphasis)

The main issue to be decided on appeal by the Namibian Supreme Court, however, was not whether the benchmark tariff amounted to a contravention of the Namibian Act, but rather, whether the NCC had jurisdiction over the matter. In other words, whether the Respondents were included under the definition of ‘undertakings’ in terms of the Namibian Act.  Chapter 1 of the Namibian Act provides that:

An “’undertaking’ means any business carried on for gain or reward by an individual, a body corporate, an unincorporated body of persons or a trust in the production supply or distribution of goods or the provision of any service”

The Namibian Supreme Court found that the Respondents were not a “business carried on for gain or reward” and, therefore, were not subject to the provisions of the Namibian Act. As such, the Namibian Supreme Court overruled the High Court’s decision, leaving NAMAF and its members to continue the use of benchmark tariffs.

The South African Competition Tribunal (SACT) had similarly dealt with this issue in a series of Orders during the course of 2004 and 2005 (see the Hospital Association of South Africa and the Board of Healthcare Funders of Southern Africa). In this regard, the SACT found that the relevant medical schemes (the Respondents) fell within the ambit of the South African Competition Act 89 of 1998 (South African Act) and, accordingly, imposed an administrative penalty on the Respondents for “benchmarking tariffs”.

In its consent orders, the South African Competition Commission (SACC), despite mentioning that the Respondents were “an association incorporated not for gain in terms of the company laws in South Africa”, held that the Respondents are an association of firms that “determines, recommends and published tariffs to and/or for its members; and which recommendations has the effect of fixing a purchase price”

Furthermore, the SACC, condemned the ‘benchmarking tariffs system’ put in place by the Respondents and argued, despite the fact that the health care professionals were still largely free to determine their own fees, publishing these recommendations amounted to price-fixing which is a per se contravention in terms of section 4(1)(b) of the South African Competition Act.

Accordingly, the differing approaches in Namibia and South Africa come down to the interpretation of what entities fall within the umbrella of the respective Competition Acts.